I’m considering doing a debt consolidation settlement program. I currently lease a vehicle. I have one year left on my lease. Will doing this hinder my ability to get a new vehicle next year?
I have a stellar payment history with everything. I’m considering doing the consolidation because my plate is full right now.
Leasing a vehicle, or getting an auto loan approved – after you consolidate your debt – is not all that problematic. But you do want to have a good grip on the realities of the situation, and set yourself up for success.
Debt Consolidation hits your credit.
The damage to your credit from debt consolidation will vary. It matters what type of debt consolidation program you are in, and also the shape of your credit when considering items that were not consolidated.
In your case, you are talking about settling debts for less than what you owe as a form of debt consolidation. That is different than consolidating through a nonprofit credit counseling agency, or more traditional forms of consolidating.
In order to settle debt – for less than the balance you owe – you have to be late with payments. And in most cases you have to be many months behind in order to achieve the most optimal savings. This means late pays aplenty. The more accounts you are trying to consolidate into debt settlement, the more the damage from late pays.
Suffice to say your credit is going to take a hit. But for how long? The answer is different for each of us.
New credit approval after you consolidated.
Assume someone has 4 good things being kept current on their credit report, like 2 student loans, and two credit card with next to, or no balance owed. But they also have 2 credit cards they consolidated by settling for less. The have just paid the settlements on the cards, and that fact is updated on their credit reports. But they have the negative credit baggage from not having paid for, say 9 months.
Those positives can help offset some of the damage that came from not paying the two credit cards for all that time. In fact, the more positives you have to absorb the negatives from consolidating the bills for less, the more elastic the credit score bounce I tend to see.
Now compare that with someone who had 6 total accounts on their credit reports, and all 6 show negative from consolidating the credit cards in a settlement program.
There are no positives to absorb some of the credit damage. And I see this credit profile take longer to bounce back.
Can you get a new car lease a year after your debts were paid through debt consolidation? For most people I recommend settlement to, yes, and even sooner. But there will be instances where you may have to wait a bit longer than that.
It is worth pointing out that someone who consolidates or settles credit card debts successfully will often have an improved debt to income and be able to afford to take on a new debt sooner than would have been the case otherwise.
Incidentally, one of the better steps to rebuilding credit is to take on a car loan.
Post an outline of your credit card debts, and an outline of the positives that will remain on your credit reports, and I can offer more detailed feedback on time lines and options.
Anyone with questions or concerns trying to lease or a buy a car with some credit blemishes can post in the comments for feedback.